Best Affirms XL Group, P&C Subs ‘A’ Ratings; Outlook Stable

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of ‘a’ of the property/casualty subsidiaries of the holding company, XL Group plc, which is based in Dublin, Ireland, and is led by XL Insurance (Bermuda) Ltd .

Best has also affirmed the ICR of ‘bbb’ of the Cayman Islands-based XL and XL Group Ltd., as well as all of its debt ratings for XL Group Ltd. The outlook for all of the ratings is stable

The report also indicated that even though “XL subsidiaries’ property/casualty operating results are unprofitable through the first six months of 2011 (with a combined ratio of 110 percent due to the worldwide catastrophes), the group averaged a favorable combined ratio of 92.3 percent for the previous five years.”

Best added that it “remains encouraged by the strategies implemented by the XL management team. These strategies are supported by an enhanced risk management program and a continued focus on underwriting as the key component of the group’s business approach. Management’s focus on its core underwriting strengths has been exhibited by the recent addition of a substantial number of new senior underwriters.

“Furthermore, as a result of XL’s completed de-risking of its investment portfolio, the organization has successfully reduced the level of market volatility in its investment results, which for the past several years over shadowed the solid operating performance of its core businesses.

“XL’s debt-to-capital ratio is expected to remain in the 15 percent-25 percent range as capital is anticipated to be enhanced by strong earnings. The fixed charge coverage stabilized in 2010 and is expected to remain comparable with the current level over the near term.”

As partial offsetting factors Best cited XL’s “exposure to large severity events and the current soft pricing stage of the underwriting cycle. Additionally, investment returns are expected to be muted by low interest rates and financial market variability.”